The OPEC`s Sudden Production Cut Raised Oil Prices to $28

The OPEC`s drastic cut in oil production has sent international oil prices soaring. The announcement pummeled share prices at home and abroad.

The Korean economy, still reeling from the aftershocks of the typhoon, `Maemi` and `the rising foreign exchange rate`, is expected to suffer even more due to sudden oil price hikes.

The share prices on the Seoul stock exchange went down 11.18 points or 1.53% to close at 713.57 Thursday. The KOSPI went below the 700-point mark for some time in the afternoon. The tech-heavy KOSDAK skidded 1.02 points or 2.17% to finish trading at 45.69.

`The oil shock` also hit financial markets across the world.

The Japanese Nikkei dropped 192.25 Yen or 1.83% to close at 10,310.04 Yen. Taiwanese stock prices fell as well.

The Dow went below the 9,500-mark as it lost 150.53 points or 1.57% to reach 9,425.51. The NASDAK came down 58.02 points or 3.05% to close at 1,843.70.

Far from the expectation that it would maintain the existing oil production quota, the OPEC decided to reduce the current daily production of 2540 barrels down to 2450 barrels during its general meeting held in Wien, Austria.

Sheikh Ahmad Fahad Al-Sabah, Energy Minister of Kuwait explained, “Considering the recent drop in oil prices and rising oil inventory, the OPEC decided to reduce its oil production starting from November 1.”

The OPEC decision raised oil prices.

The prices of Western Texas Intermediaries rose as much as $1.07 to reach $28.02 per barrel on the New York Mercantile Exchange September 24, soaring above $28 per barrel for the first time in ten days since September 15. North Sea Brent oil also closed trading $27.09 up $0.9.

The surging international oil prices raise the concern that the recovery of the already-weakened Korean economy could further be delayed.

Lee Doo-won, economics professor at Yonsei University warned, “Oil price hikes could undermine the production of all industries and reduce consumption by increasing consumer prices.” He added, “Soaring oil prices, following the typhoon and foreign exchange shocks, would aggravate all economic variables.

Ki-Jeong Ko Kang-Woon Lee koh@donga.com kwoon90@donga.com